Hungary's new road freight legislation punctures industrial dreams

By bne IntelliNews January 28, 2015

Kester Eddy in Budapest -

 

The “Hungarian model” is really working very well and recent results prove this, declared Peter Szijjarto, Hungary's foreign minister, as the foundation stone was laid at a new manufacturing facility in the south-western town of Zalaegerszeg on January 27. 

The new plant, a HUF4.5bn (€14.5mn) investment by Edelmann, the German printing and packaging company, will create 100 new jobs and make Zalaegerszeg the second largest of the group's six European production bases, according to state news agency MTI, citing Dierk Schroder, Edelmann's managing director. A day of photo-shoot grins for Schroder, then; but for every German industrialist smiling in Hungary right now, a dozen or more are gnashing their teeth. 

On New Year's day, Budapest introduced a new road freight registration and tracking system known by it's Hungarian acronym as Ekaer for all but the smallest of commercial deliveries by road.  

Ekaer requires a mass of detailed data about commercial consignments, including the contents, value, sender, recipient, truck registration numbers, and times of arrival and unloading all to be sent to the tax authority in advance of shipping. Any failure to comply, if discovered by mobile inspectors, can result in the confiscation of goods and fines of up to 40% of the shipment's value.

The new regulations, the government says, are needed to combat VAT fraud rackets involving phantom cross-border consignments of goods. But industry leaders and hauliers alike are condemning the measures as a bureaucratic nightmare. “Ekaer… is an extra administrative burden, it imposes unnecessary costs and weakens the competitiveness not just of our company, but of the whole Hungarian automotive industry,” Thomas Faustmann, managing director of Audi Hungaria, a flagship German investor in the Magyar auto industry, told autopro.hu, a industry-specialist website

Faustmann, whose plant in western Hungary produced more than 135,000 cars and almost 2mn engines last year, continued:  “Just think about it… every day we receive nearly 30,000 parts from 1,500 suppliers. How is it possible to administer all these item by item in the new system? We just don't have the capacity for this”.

Audi Hungaria would have to recruit 20 more staff for each of three shifts simply to administer “this pointless task”, he explained, adding: “I fully support the fight against VAT crooks. But not at such a price.” 

Audi Hungaria declined to comment further to bne IntelliNews, only confirming that the autopro.hu story was accurate. 

Other industry professionals and associations support the German car maker's lament. “This is terribly time and cost consuming. I will have to take on at least 10 more staff, only for this job of typing in administration” Arpad Vasarhelyi, head of DB Schenker, part of the German-based logistics group, tells bne IntelliNews. Asked how much this would add to costs, Vasarhelyi replied: “It's very hard to say. It's all so very [uncertain], every single day we get new information, other information is no longer valid”.  

In a press statement, the Hungarian Association of Logistics, Purchasing and Inventory Management (MLBKT), which has 600 members, demanded that the law be rescinded in its present form, calling the new system “chaotic, contradictory" and saying it wouldn't achieve its initial aim. “Ekaer… puts law-abiding and fair producers, traders and freight forwarders into a difficult situation. The initial aim was to prevent VAT fraud... the law still leaves lots of loopholes to avoid paying taxes,” the MLBKT said. 

Second thoughts?

Not for the first time, the Hungarian government has been accused of failing to consult with industry professionals when preparing legislation. “Parts of the law are simply unenforceable: companies are often obliged to provide data that are impossible to receive in time from their international partners”, said the MLBKT. And while the initial intention was “good willed”, finding a genuine solution to VAT fraud “must involve thorough professional preparation and collaboration with economic actors”, it said. 

As a result of the mass outcry, and somewhat belatedly, the government appears to be having second thoughts. Asked to comment on the industry's complaints, a spokesman tells bne IntelliNews that the government had extended what it terms the “trial run” of Ekaer, meaning it will not impose penalties if hauliers are found to have paperwork out of compliance with the new system, until March 1. “In light of remarks and proposals received from market participants and experiences gained during this two-month period, the Ministry for National Economy will evaluate the necessity and possibility of amending the regulation,” the spokesman says. 

For Hungary's frazzled industry leaders, it offers a glimmer of hope. Yet, as Audi's Faustmann pointed out, the entire affair makes a mockery of the government's supposed long-term intentions of becoming Central Europe's “centre of industrial production”.  “For this, you need to create framework of appropriate conditions. This is also in line with our strategic agreement, signed with the government”, Faustmann told autopro.hu, adding, as a warning, that Hungary could easily lose out if the mess continued.

“In the neighbouring countries in Slovakia, the Czech Republic, Romania and Poland dozens of factories are on the lookout, just waiting for orders,” he said.

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